In light of the rising national debt, some have proposed a constitutional amendment to prohibit budget deficits and ensure balanced government budgets. What would be the consequences of a balanced budget amendment, and is it a good idea?
The national debt of the United States federal government currently exceeds $30 trillion, accumulated by borrowing to cover yearly federal government budget deficits. Every year, the United States federal government pays several hundred billion dollars in interest payments on the debt.
Unsurprisingly, the growing national debt is a substantial concern for many people. Among the proposals to address the national debt is a balanced budget amendment. A balanced budget amendment would constitutionally mandate that the federal government not run a net budget deficit, whether over a single year or over the course of an economic cycle, with possible exceptions for emergencies.
However, a national balanced budget amendment raises several difficulties. First, deficit spending does at times have a legitimate and important economic role. Mainline economic thought promotes the concept of countercyclical economic policy. In essence, in times of depressed economic activity, the government should enact policies that increase spending to avert or ameliorate recessions, whereas in times of too high economic activity, the government should enact policies that decrease spending to avert economic overheating.
Countercyclical economic policy allows the government to exert a stabilizing force on the economy by correcting disruptions to the economic equilibrium. This means that during recessions, just when tax revenue is dropping, governments need to raise spending, which requires deficit spending. If a balanced budget amendment mandated that governments have a balanced budget every single year, then during recessions, when faced with dropping tax revenue, governments would have to cut spending, which would exacerbate the lack of economic activity.
Among the reasons the Great Depression was so severe was a failure by governments to adopt strong countercyclical economic policies. Because of the need for countercyclical policy, almost all economists agree that a strict balanced budget amendment that prohibits net deficits on a yearly basis would be disastrous.
Existing balanced budget amendments in countries around the world generally have exceptions. The balanced budget amendment that took force in Italy in 2014 allowed the Italian legislature to run a deficit if it was necessary or during adverse phases of economic cycles. Since then, the Italian legislature has voted year after year by an absolute majority to make an exception to the amendment and pass a budget with a deficit, so Italy has not achieved a balanced budget since.
The case of Italy tells us something important. If there are exceptions, the government can use loopholes to defang a balanced budget amendment and render it meaningless.
However, stricter amendments come with different risks. While the Italian amendment required only an absolute majority in the legislature to suspend the amendment, stricter requirements for making exceptions to balanced budgets might heighten political dysfunction. As the American political system has grown more polarized and dysfunctional, several government shutdowns have already occurred in recent years due to failures by Congress to pass a budget, which at the moment requires only a majority vote in the House and Senate.
Given this dysfunction, even if economic conditions warranted an unbalanced budget, it seems highly unlikely that Congress could achieve enough consensus to invoke an exception to a balanced budget amendment. Furthermore, the interpretation of a balanced budget amendment might not be straightforward, which could then in turn involve the judiciary in the budgetary process, further complicating and slowing down an already daunting and broken process.
While there are legitimate concerns about American government spending and debt, a balanced budget amendment is not a good solution. At best, it would complicate the budgetary process even more and heighten the risk of government shutdowns. At worst, it would prevent the government from combatting recessions with sound economic policy, causing complete economic disaster.
The opinions expressed in this article are those of the individual author.
Sources:
Kogan, Richard. “Constitutional Balanced Budget Amendment Poses Serious Risks.” Center on Budget and Policy Priorities, 15 July 2014, www.cbpp.org/research/federal-budget/constitutional-balanced-budget-amendment-poses-serious-risks.
“National Debt in Italy.” Worlddata.info, www.worlddata.info/europe/italy/debt.php#:~:text=The%20budget%20deficit%20in%20Italy%20in%20the%20period. Accessed 31 July 2023.
Reuters Staff. “Italy Parliament Approves Balanced Budget Law.” Reuters, 20 Dec. 2012, www.reuters.com/article/italy-budget-senate-idUSL5E8NKDKR20121220. Accessed 31 July 2023.
US Treasury. “Fiscal Data Explains the National Debt.” Fiscaldata.treasury.gov, 2023, fiscaldata.treasury.gov/americas-finance-guide/national-debt/
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